Florida politics, policy, and plain-spoken analysis by Gary Fineout.

State pension plan

April 13, 2011

The House and Senate have passed rival versions of the state budget and the negotiations between Republican leaders have already begun, although out of sight and quietly right now.

When you are talking about spending close to $70 billion there is a lot of moving parts. And with talk of deficits, shortfalls, budget cuts, trust funds, allocations it can be a bit overwhelming.

Consider this a quick and easy guide to the main concepts in play with the promise that more may come later:

IT'S A BUDGET SHORTFALL, NOT A DEFICIT: Sometimes there is a temptation to use the terms shortfall and deficit interchangeably. But it's not accurate. Florida has a projected $3.75 budget shortfall not a deficit. In other words, it's not that revenue is dropping. It's that the revenue is not rising fast enough to meet all the projected budgetary needs.

Part of those budgetary needs have been caused by the loss of federal stimulus dollars at the end of June. Lawmakers used the stimulus to cushion the state budget when state tax collections were in fact dropping due to the recession and implosion of the state's real estate market. But the stimulus money is going away - and the places where that has a big impact is in the Medicaid program and in public school funding. The biggest reason for Gov. Rick Scott's 10 percent proposed cut in school funding was that Scott said he had no intention of replacing federal stimulus dollars with state dollars.

Legislative leaders have made it clear that they do not intend to raise revenue (with a few caveats) to deal with this shortfall. So they are looking at cutting the budget and forcing state workers to pay part of their pension costs to make up the difference.

IT'S ALL ABOUT ALLOCATIONS, ALLOCATIONS, ALLOCATIONS...While many lawmakers have a say in many of the line-items included in the budget, the starting point is really concentrated in the hands of a few people. Both Senate President Mike Haridopolos and House Speaker Dean Cannon must agree on how money to "allocate" to each of the separate areas of the budget. There's only so much money that can go around. And if you give more money from one area, you have to take it from someplace else.

And part of the allocation process is not just deciding how much money goes to schools or health care. It's how much money that can be used to offset tax cuts. Gov. Rick Scott asked for nearly $2 billion worth tax cuts and he said he's "comfortable" that lawmakers will give it to him, especially his corporate income tax proposal. The bottom line, however, is that state lawmakers can't come up with a final budget until the two legislative leaders sign off on the allocations. And that means it's largely up to the legislative leaders to decide whether they want to give Scott what he wants.

WHO IS THIS GENERAL REVENUE?...The money that is part of the important allocation process is known as "general revenue." This is Capitol shorthand for the state's main checking account. This is the money that comes primarily from the state's 6 percent sales tax, but a handful of other taxes as well such as the corporate income tax, the insurance premium tax and documentary stamp taxes on real estate transactions.

When the amount of general revenue goes down - or doesn't go up as fast as expected - it causes a big problem for state lawmakers since it's their main source of income. But it's important to point out that general revenue is expected to generate $23.8 billion in the coming year. So no, the final amount of spending and the budget is not completely dependent on just general revenue. The final budget amount is also dependent on federal aid and how much money the state takes in what are known as "trust funds."

WHO DOES MONEY FROM A TRUST FUND BELONG TO?...Copious amounts of debate has already been held this session about "trust funds." So what are they? Trust funds are accounts that are set up in state law with a dedicated source of revenue and a dedicated place where the money is spent. And therein lies the big argument. Many groups that pay fees or taxes that wind up in these trust funds view these accounts as special. And they get upset when state lawmakers tinker with them.

Supporters of trust funds argue that a promise was made and that the money should continue to be spent on that program regardless of the ongoing financial realities of the state. There is a fear that a fund dedicated say to affordable housing will vanish and never come back if it is mixed in with money that also goes to schools, health care and prisons. But the counter argument is this: Is it really fair to cut funding to schools and health care while another state program remains intact? Yet groups - whether they are gun owners who pay a concealed weapons fee or those who pay a tax on real-estate transactions - argue that it is a defacto tax increase if money isn't spent the way they want.

HOW MUCH IS THE STATE REALLY SPENDING?...Most people are aware of the ongoing Washington D.C. debate about budgets and what's covered and what's not. Well there is the same kind of debate going on this year in Tallahassee. How big is the state budget really? That's not an easy question to answer. One of the biggest differences right now between the House and Senate budgets is that the Senate budget is much larger because it includes items in the budget that the House doesn't include.

Is this a big deal? Yes and no. If an item is in the budget that means that state lawmakers ultimately control the overall amount spent. That's the logic behind including the budgets from water management districts in the Senate version. But there's also a political dynamic at work here. The more stuff you put in the budget the larger it gets. And at the end of the day, how you explain to voters that the budget you approved was actually larger on paper than the one approved a year ago?

But in reality lawmakers have routinely put stuff in and then yanked stuff out of the budget. It can make it hard to get a read on the complete level of state spending because sometimes they appropriate money in other bills unrelated directly to the budget. Plus, there are lot of other things controlled by state government that aren't annually budgeted such as money shared with city and county governments.

RECURRING OR NON-RECURRING?..You could say money is money. But in the world of the Capitol there's two kinds. There's the kind of money that everyone thinks will keep coming in year after year or "recurring." Then there's "non-recurring," or a supposed one-time windfall that may not be there next year.

The reason that lawmakers separate the two is that there is a thought that it's a bad idea to tie an ongoing expense to non-recurring money. The theory is that this is like wiping out your savings account in order to pay your mortgage. You will get another bill in a month so you have only delayed your financial problems. Now that's not to say that lawmakers haven't done the same thing in the past.

But the state constitution actually places a limit on how much non-recurring money can be placed in the state budget. Anything above 3 percent requires a three-fifths vote of the entire Legislature. So why is this a bit of a problem this year? Because one of the key problems with Gov. Rick Scott's push with phasing out the corporate income tax is that once you do that it starts converting so-called recurring money to non-recurring money. Even if lawmakers passed a bill this year that phases it out over the next seven years the economists will start counting it differently because now the money is "non-recurring."

THOSE PESKY CONFORMING BILLS...It used to be that state lawmakers would pass a 500-page budget and it included all sorts of directions and instructions on how to carry out the budget. Over the years - and thanks to some lawsuits along the way - the Legislature has started passing dozens of so-called "conforming" bills to accompany the budget.

Sen. Don Gaetz last week asserted that these bills aren't usually substantive. Hmm. That may be true for many of them. But in reality these bills are measures that change state law in order to carry out spending reductions or changes. These measures can be just as sweeping as the budget. For example, how about a "conforming" bill that says money from a cigarette tax hike passed two years ago will no longer go to cancer research.

But it's more than just that. Lawmakers have placed all these conforming bills into the actual budget conference process. So what does that mean? That means they can't be amended once they reach the House and Senate floor. Last week, for example, the House and Senate included their pension reform bills into the budget conference. That means once top leaders negotiate what's in the bill it will be subject to an up or down vote. This has been a problem in the past because until last year the wording of conforming bills was decided behind closed doors.

In response to the scandal involving former House Speaker Ray Sansom, legislators vowed to go over each and every conforming bill in a public meeting. They have promised to do the same this year and a new clause in legislative rules requires a 24-hour waiting period before a final vote can be taken on conforming bills. The bottom line is this that t's not just the budget that you need to watch.

TURKEY AND PORK...No, this is not a Thanksgiving Day menu. In most places when a powerful politician puts something in the budget it's called "pork." In Tallahassee, the parlance is a budget "turkey." Of course, what gets defined as a turkey or pork is a matter of great debate each and every year.

The way the budget process usually work is this: First state agencies put in what's called a "legislative budget request." This is supposed to be an independent assessment by the agency of its financial needs in the coming year. Of course, surprise, surprise, some agencies have not followed that edict especially when agency heads report to a governor who has made it clear that he doesn't want his agencies asking for any additional money. After the "LBR's" are released, the governor takes that information and presents his official budget recommendations to the Legislature.

Lawmakers take the governor's recommendations and build upon it - adding or deleting things that they don't agree with. Many people say that anything not recommended by the governor or by a state agency is a budget turkey. In a lot of instances this is state money set aside for some type of local project or service. Over the years legislators have argued that their opinion on spending items is just as legitimate as that of an agency head in Tallahassee.

LINE-ITEM VETO POWER...One of the most important things to remember about how the state handles its budget is that the governor has line-item veto power. This means that the governor can completely eliminate any spending item without eliminating the entire budget.

Now, theoretically there are limits to this power. A governor is not legally allowed to veto what is called "provisos" or instructions that accompany certain spending items without wiping out the spending item as well. The governor is also not allowed to veto part of an appropriation. So guess what happened under former Gov. Charlie Crist? Yep. Crist pretty much ignored these restrictions in law.

Did lawmakers complain? Sure they did. But they didn't sue to stop him either. Why is this so important? Because there is ample evidence that the current Legislature will not take the same stance with Gov. Rick Scott. Scott has already ruffled feathers with several steps he has taken that some legislators contend exceed his constitutional limits. If Scott uses the precedent set by Crist it could spark a full-fledged legal battle in front of the Supreme Court later this year.

March 20, 2011

On the campaign trail, Gov. Rick Scott accused his Democratic rival of allowing the state’s pension fund to lose billions when she was in office.

One hard-hitting television ad said that Chief Financial Officer Alex Sink had allowed the state to invest in “risky investments” and a spokesman even called her oversight of the retirement fund for teachers, state workers and county employees a “disaster.”

“You have been a failed fiscal watchdog,’’ Scott told Sink during one of their televised debates.

But in the two-and-a-half months since Scott became governor he has made no sweeping changes in the agency that oversees the pension fund – or pushed to change any of the investment policies now in place. He’s left in place Ash Williams, the executive director of the State Board of Administration, the agency that runs the state pension plan.

The target of his attacks says Scott may have learned after the election that things were better than he suggested.

“Maybe he’s seen the light and recognized we definitely have one of the top five pension funds in the country,’’ Sink said.

Sink added that his decision so far to not make any changes is “probably the smartest thing he’s done for now.”